Unsuccessful parties to litigation will normally need to pay part of the successful party’s costs as well as their own. It is therefore worth considering After The Event (ATE) insurance to help safeguard against this risk. Without it, a losing party can be liable to pay for the other side’s legal costs and expenses such as court fees, medical reports and barrister fees.
What is ATE Insurance?
ATE Insurance is an insurance policy acquired to protect you against the legal costs of litigation. When you instruct a solicitor on a civil litigation matter, they have a duty to discuss with you how you plan to pay for your legal costs. This includes considering whether you should take out insurance against having to pay a part of the other side’s costs should you lose the case.
ATE insurance was introduced in the Access to Justice Act 1999 and is usually purchased by solicitors on behalf of their clients after a legal dispute arises. It can be obtained for nearly all areas of litigation (except for matrimonial or criminal law) before proceedings have been issued. It can also be purchased at any time after proceedings have commenced, although the later it is purchased, the more expensive the premium is likely to be.
For more information on the different types of ATE insurance that can be purchased, see our article on ‘After the Event Insurance options’ here.
What does ATE Insurance Cover?
ATE insurance is available either to meet the other side’s costs only or the other side’s costs and part of your own costs too, depending on the level and terms of the policy. It can include costs incurred before the policy was taken out and the amount of cover available can range immensely, from a few thousand pounds up to many millions of pounds.
ATE insurance policies will usually cover the legal costs and expenses that a claimant would be obliged to pay to a defendant when they lose or discontinue their claim. Such insurance may also cover disbursements (expenses) incurred by the insured party where they lose the case, such as payments to expert witnesses. Some policies may go further and also include a portion of counsel’s professional fees.
Some insurers will allow you to include the ATE premium in the cover so that you don’t have to pay for it upfront and it will only become payable if you win your claim. In the event of an unsuccessful claim, your ATE policy can be classed as an expense, so it effectively pays for itself, leaving you with nothing to pay towards taking out the policy. However, other insurers may seek payment of the premium when the policy is taken out.
Is ATE Insurance Available to Both Claimants and Defendants?
ATE insurance is usually only available to claimants, but some insurers may also be willing to provide cover for defendants who can show a defence with merit and a viable counterclaim.
The main requirement for obtaining ATE insurance is to satisfy the insurers that your chance of success on the merits of the case is at least 60% and that you will be able to pay the premium if required to do so.
Can I Recover My Premium from the Other Party if I Win My Claim?
Since April 2013, you will have to pay the ATE insurance premium even if you win your claim as it can no longer be recovered from the losing party in the litigation. There are some limited exceptions to this relating to;
- insolvency-related proceedings (up to 5 April 2016)
- publication and privacy proceedings
- claims for damages in respect of mesothelioma
This was reinforced by the Supreme Court’s judgment in McGraddie v McGraddie & Another, where the claimant tried to recover the ATE insurance premium from the other party in the litigation. He argued that since it was an expense of the litigation, it should be payable by the losing party. However, the Supreme Court held that it was not possible to recover the premium. The court noted that while it was reasonable to incur a premium for ATE insurance, it was not an ‘expense’ under the rules of the court.
When is ATE Insurance not Appropriate?
It may not be appropriate to take out ATE insurance in certain cases. You may already have a Before the Event Insurance, which is a policy purchased before the incident that gave rise to your claim. Many business insurance policies and even some home insurance policies will have legal expenses insurance included in them or offered as an optional extra. This will often include payment for the other side’s costs if you lose your claim. In such circumstances, you may not need ATE insurance, although you may consider it if your existing insurance coverage is insufficient or does not extend to the type of claim you are making.
ATE insurance will only be offered where the insurer feels that your case has a good prospect of success. This means that the prospects of success must generally be 60% or more.
ATE insurance is not normally an option where there is a fixed recovery rate. It will generally not be offered (or only offered at an extremely high price) where the case involves novel issues or class actions. Furthermore, such insurance is only limited to English court litigation and tribunals. It will not cover matters in other jurisdictions.
The Benefits of ATE Insurance
The main benefit of ATE insurance is that it removes the risk of having to pay the other side’s costs and, where covered, your own disbursements, such as medical reports, barrister fees and court fees, where you are unsuccessful in a claim. This is important as many small businesses avoid bringing potentially worthwhile claims because of the fear of being subjected to an adverse cost order.
There are also tactical advantages to having ATE insurance in place as it motivates the opposing side to settle. They will be aware that the insurer would have analysed the merits of the case and would only have provided cover if they thought you had a good chance of success. It also shows that you are serious about taking the matter to court and have taken steps to mitigate the risks associated with litigation.
ATE policies are flexible and can be arranged at any stage of litigation, although the later you leave it, the more costly it will be.
The Limitations of ATE
There are, however, some disadvantages to ATE insurance. The premium can be costly and as it is no longer recoverable from the losing party even if your claim succeeds, it will come out of your compensation award.
Insurers will not fund your case if they feel it is unlikely to succeed. To determine this, most insurers will require a separate assessment of your case (which would usually be an opinion from a barrister) and this cost will be incurred by you. If insurance is later provided, however, this cost may be absorbed by the premium.
Furthermore, if the likelihood of success falls below your insurer’s minimum percentage at any time during the proceedings, the insurer may withdraw the cover. Depending on your cover, however, some insurers may agree to cover you for adverse costs up to the date of the withdrawal of your policy and up to the agreed limit of indemnity.
ATE insurance will normally contain a list of exclusions so you will need to read the policy details carefully to make sure you are aware of them. Some common examples of exclusions include insolvency of your opponent, discontinuance of the case due to lack of funds and misrepresentation or fraud.
Having ATE insurance in place could mean that you have less freedom when it comes to settling a claim. Insurers may insist on agreeing on an acceptable settlement figure from the outset and you would need to seek their consent if you wanted to accept a sum below that figure, or risk having to pay the full premium. You would also usually need to get your insurer’s agreement prior to abandoning proceedings by consent or discontinuing the proceedings.
Finally, an ATE policy may not be adequate to defend an application for security for costs by itself.
Security for Costs and ATE Insurance
A security for costs order is a way for a defendant in a weak or speculative claim to make sure that their legal costs are recoverable should the claimant lose its case against them. It is often sought by defendants who feel they are being pursued by someone with ‘nothing to lose.’ The claimant may be required to pay money to the court to protect the defendant’s legal costs.
Recent case law has considered whether having ATE insurance in place that could pay some or all of the defendant’s costs is sufficient as a substitute or a defence to a security for costs application.
In Premier Motor Auctions Ltd (in liquidation) v PricewaterhouseCoopers and Lloyds Bank, the Court of Appeal held that ‘an appropriately framed’ ATE insurance policy could, in theory, be a substitute for a security costs order. However, it was necessary to analyse the policy itself to determine whether sufficient protection is given to a defendant seeking security. In that case, the ATE policy did not provide enough protection as it did not include a general anti-avoidance provision, meaning that the ATE insurers could look to reject the claims for non-disclosure or the misrepresentation of material information. Consequently, security for cost orders were allowed.
This case demonstrates that even where claimants have ATE policies in place that could, in principle, pay the defendant’s costs, the courts may still order security of costs if there is a risk that the insurers could evade the policy where there is a breach of terms by the policyholder.
If you are intending to use an ATE insurance policy to defend a threatened or actual security for costs order, you should ensure that the policy you are taking out is properly drafted, obtained from a reputable insurer and contains a non-avoidance clause. However, a non-avoidance clause from your insurer will mean that your premium cost is higher and some insurers will also require that there be a higher prospect of success than normal where such a clause is provided.
Contact Us
At Witan Solicitors, we are available to discuss ATE insurance, help you find the best solutions for your case and where appropriate, purchase ATE insurance on your behalf to help you fund your claim. Email us today.
